This study examines the increasing informality in Pakistan accompanying the fluctuating industrial growth in the wake of economic liberalization. The percentage distribution of labour in informal employment by major industry divisions is used as a proxy for the informal sector. A dynamic panel data model is constructed to analyze cyclicality and industry layering of informal employment. It is found that a declining tariff rate increases informality, confirming the structuralist hypothesis. There also exists a static subset which is marginal and growth-retarding. The results imply a structured and targeted policy for each subset to deal with undesirable features of informal employment.
